When home-buyers consider the cost of purchasing a home, they tend to focus on mortgage rates and how much they’ll be paying in interest over the life of the loan, as that is by far the biggest cost associated with a mortgage. It’s also important, though, to consider other costs since they can quickly add up.

The final hurdle all homeowners face before they finally purchase their home is closing costs. These fees typically represent a significant amount of the total home purchase and usually cost between three to six percent of the mortgage. Closing costs can be a big, unexpected expense for a potential home-buyer who isn’t anticipating them.

So how can you calculate exactly how much you’ll pay in closing costs? What fees are included in these costs, and can you roll them into your mortgage? Can you avoid paying them altogether?

Below, we’ll explain why these expenses are incurred and what you can expect to pay at closing.

 

What Are Closing Costs?

closing fees are required to officially complete a real estate transaction

Closing fees are a cost associated with the transfer of ownership during the home purchasing process. These fees are required to officially complete a real estate transaction. Either the buyer or seller pays these fees on the settlement date. The law requires lenders to offer a loan estimate within three days of receiving an application. The information on the application will dictate the closing cost. However, these fees are not always final and are subject to change.

The lender should issue a closing disclosure statement at least three business days before the closing date. The closing costs estimate on these documents should be closer to your total expected payment. Before closing, compare the final fees to your initial loan estimate and ask your lender to explain any changes in costs.

 

What Fees Can I Expect at Closing?

Closing cost fees vary and mostly depend on the type of property you buy, where you live and the loan you secure. Below some of the fees most commonly included in closing costs.

closing costs fees may vary depending on a number of factors

  • Appraisal fee: This fee is paid to the appraiser who is assessing the property’s value.
  • Application fee: This fee is the cost for the lender to process your application. The fee typically covers services, like a credit check or appraisal. Before you submit your application, ask your lender what this fee includes and negotiate if possible.
  • Attorney fee: This fee covers the cost for an attorney to review the closing documents. Some home-buyers may not be required to pay this fee, as not every state requires this step.
  • Courier fee: To complete the transaction of your loan, your documents must be transported quickly. This fee covers the cost of that transportation.
  • Credit report fee: Lenders require a tri-merge credit report to approve your credit history and score. This fee covers the cost of pulling a credit report, which ultimately determines the interest rate you’ll pay on your loan.
  • Deposit for mortgage insurance and property taxes: You may be asked to put down a total of two months’ worth of mortgage insurance payments and property taxes at closing.
  • Discount points: This expense is paid upfront if you want to get a lower mortgage rate. It is not always available, but you can ask your lender about it.
  • Home inspection: Before closing on a home, you’ll want to schedule an inspection to ensure the property you’re about to purchase is in good condition. An inspector will notify you if any home repairs are needed. If repairs are required, you can use that information to negotiate a lower price from the seller.
  • Homeowners’ insurance: This insurance covers potential damage to your house, and you may be required to pay for the first year of that insurance upfront at closing.
  • Loan origination fee: The origination fee covers the administrative costs incurred by the lender and is typically about one percent of the loan amount. In some cases, lenders offer home loans with no origination fee.
  • Pest inspection fee: As with a home inspection, you may want to schedule a pest inspection. In some states and for government loans, this inspection is required. This is because repairs for termites or dry rot can be quite costly.
  • Private mortgage insurance payment: Unless you’ve made a down payment of at least 20 percent, you may need to pay private mortgage insurance. At closing, you’ll pay the first month’s payment if this insurance requirement applies to you.
  • Property tax: Generally, at closing your lender will also want you to pay any taxes that are due within 60 days of the purchase. This can be one of the biggest expenses at closing, and the amount you’ll pay depends on the tax rate in your home’s town or county and the value of the home.
  • Recording fee: This fee is for recording the property’s change in ownership and is charged by the county or city.
  • Title insurance fee: This fee refers to both the buyer’s policy and the lender’s policy. These policies protect the buyer and lender respectively in the case of a title dispute.
  • Transfer tax: This tax is incurred when the title of the house passes to the buyer from the seller.
  • Underwriting fee: This fee covers your lender’s underwriting costs and the research process to approve you for the loan.

Though you may see some of these fees in your closing costs, your loan is not likely to include all of them.

 

What Is a Good Faith Estimate?

a good faith estimate gives you some basic information about your loan

If you apply for a reverse mortgage, you will receive a form called a Good Faith Estimate. A GFE gives you some basic information about your loan, which is meant to help you understand the cost of the loan, compare offers and make an informed decision. Lenders are required to give you a GFE within three business days after receiving your application and any other required information. You can’t be charged any fees, except a credit report fee, before you receive a GFE and tell the lender you want to proceed with the loan.

You’ll also receive a Truth-in-Lending disclosure, which gives you information on the costs of your credit. You should receive a disclosure when applying for the loan and a final disclosure prior to closing.

The law also required GFEs for regular mortgages until 2015. For most types of mortgages, a form known as the Loan Estimate took the place of the GFE on October 3, 2015. This three-page form gives you details about your loan, including the monthly payment, estimated interest rate and total closing costs. The lender must also provide this form within three business days of receiving your application. You should also receive a five-page document called a Closing Disclosure at least three business days before closing on your mortgage loan.

If you apply for another type of loan, such as a HELOC, you won’t receive a GFE or Loan Estimate, but you should get a Truth-in-Lending disclosure.

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the-average-cost-of-closing-fees-for-homebuyers

How Do I Calculate Closing Costs and What Should I Expect to Pay?

On average, most homebuyers will pay between 2% and 5% of the purchase price of their home in closing costs. If you’re looking into how to calculate closing costs, you’ll need to have some information on different factors. The amount varies depending on the amount of the mortgage loan, the loan type and the region in which you are purchasing.

For example, if your home costs $200,000, you may pay between $4,000 and $10,000 in closing fees. Before closing, discuss the details of these costs with your lender and find out if they are willing to offer you a loan with lower fees.

The average cost of closing fees for homebuyers is $6,837. The higher the purchase price of your home, the higher your closing costs will be. While the average closing costs for a $150,000 house might be between $3,000 and $7,500, the average closing costs for a $600,000 are between $12,000 and $30,000.

If you don’t have a real estate agent to estimate the total amount of your closing costs for you, you can calculate the total by adding the fees yourself.

Though the seller does cover certain closing costs, there are closing costs that the buyer should expect to be responsible for paying. But how much will each fee actually cost you? Here is a breakdown of the typical closing costs that homebuyers can expect to pay:

    • Appraisal fee: This fee can cost the buyer $500 to $1,000 or more. This cost is generally paid upfront.
    • Lender fees: This cost can be several percentage points of your total loan amount. Lender fees include an application fee, processing fees, underwriting fees, wire transfers and more.
    • Property insurance and taxes: The cost of property insurance and taxes can range from $1,000 to $4,500 or more. The annual premium for property insurance is generally owed at closing. Your property tax amount depends on your location and your lender. Generally, upon closing, lenders will require that you pay for at least two to three months of your property taxes.
    • Title fees: These fees typically cost about $300 to $2,500 or more. Whether the buyer or seller covers these fees depends on the state they are buying and selling in. Title fees generally involve title search fees, title insurance and notary fees.
    • Transfer taxes: These taxes can vary by region. The transfer taxes refer to the transfer of the property’s deed and can be paid by either the seller or buyer or split between them.

Costs vary by location, and sometimes buyer closing costs can be negotiated and paid for by the seller. Sellers may be responsible for paying liens on the property, property taxes, real estate commissions, title taxes, transfer taxes and utility bills that are past due.

Negotiating with your seller can be a great way to reduce your closing costs. Most of these costs are negotiable. In some cases, the seller may even be willing to cover all of the closing costs. When you’re facing the expense of closing costs on your potential new home, don’t be afraid to discuss and negotiate these costs with the seller.

buyers-and-sellers-are-responsbile-for-closing-costs

Who Pays Closing Costs?

Both buyers and sellers are responsible for closing costs. The amounts can vary widely by property, jurisdiction, mortgage type and even the negotiations between the buyer and seller. Because the term “closing costs” is used as a catchall, it can include many costs that come due at closing on both sides. For example, if the seller is behind on their property taxes, they’ll need to ensure they’re current before closing.

Typically, the seller pays most of the fees, including both real estate agents’ commissions. Estimated closing costs for sellers are usually about 5% to 6% of the sale price in closing costs, while buyers typically pay between 2% and 5%.

The bulk of the costs for sellers comes down to the commission for the real estate agents, but it can be harder to determine how much closing costs are for the buyer. Buyers pay more varied costs related to the process of buying the home, like inspections and underwriting, along with prepaid costs like homeowners insurance and escrow.

Most of these costs are out of pocket for buyers, but you may be able to get another party to cover some or all of the costs. Sometimes, you can negotiate with the seller or roll some of the closing costs into your mortgage.

Down payment assistance programs may be able to help with covering closing costs. Your escrow company can also put a credit toward your down payment if you put any earnest money into escrow when putting in your offer.

Closing Costs for Sellers vs. Closing Costs for Buyers

The seller typically takes on the majority of closing costs, and they can often be deducted “off the top” of the price of the home, so there is no separate payment needed. Although buyers can sometimes shop around for lower fees, sellers don’t usually have as much flexibility. Still, the largest item is typically the commission for a real estate agent, which you may be able to negotiate.

Some common closing costs for sellers include:

  • Realtor commissions: The real estate agents for both the buyer and the seller receive compensation, usually paid for by the seller as a percentage of the total purchase price.
  • Title fees: The seller takes care of the fees to transfer the home’s title to the buyer.
  • Homeowners association (HOA) fees: If the seller has any outstanding fees owed to their HOA, they’ll need to pay them at closing.
  • Property taxes: Similarly, the seller must cover any unpaid property taxes at closing.

Buyers have to pay for most of the other fees we’ve already discussed, such as:

  • Attorney costs
  • Home inspection fees
  • Appraisal fees
  • Underwriting or credit reporting fees
  • Prepaid interest
  • Homeowners insurance
  • Title fees and insurance
  • Escrow

While many people don’t consider it a closing cost, your down payment is also due at closing.

Can Closing Costs Be Included in a Mortgage?

The short answer is yes, you can finance your closing costs. This doesn’t mean you’re not paying them. It just means you’re not paying thousands of dollars upfront when you close on your new home. After a large chunk of your savings goes toward a down payment, financing your closing costs may seem like an appealing financial move.

If you live in your home for only a few years or you’re able to pay your loans off quickly, then rolling your closing costs into your mortgage might be a worthwhile option.

if you live in your home for only a few years then rolling your closing costs into your mortgage might be a good option

For many home-buyers, however, paying closing costs over the long run may actually end up costing you more than if you had paid your closing costs in cash upfront. Your lender may also not allow rolling in closing costs with your mortgage, so if you want to pursue this payment avenue, be sure to first discuss it with your lender.

 

When Are Closing Costs Paid?

Closing is the point at which the property’s title transfers to the buyer from the seller. Closing costs are also paid at this time.

However, if you opt to finance your closing costs or to secure a no-closing-cost mortgage, then you will effectively pay for your closing costs or for the lender’s recouping of your closing costs over the years of your loan term.

ways-to-reduce-closing-costs

 

Can You Avoid Closing Costs?

If you’re a home-buyer, you may be looking into various avenues that will allow you to save money on your home purchase. One of those ways may be reducing or even eliminating closing costs.

 

1. Deduct Closing Costs During Tax Season

deduct closing costs during tax season

Despite what you might have heard about all closing costs being tax-deductible, the truth is that most are not. However, there are a few that may apply to you, and the tax deduction could be substantial.

If you want to deduct your closing costs, you won’t be able to take a standard deduction. To deduct the following costs as a buyer, you will need to use a Schedule A for itemizing your deductions.

  • Property taxes: You may be able to deduct property taxes you paid at closing.
  • Mortgage insurance premiums: Mortgage insurance premiums that you prepaid may be deductible.
  • Discount points: If you pay for discount points to lower your mortgage interest rate, these may be tax-deductible.

Though you may be able to deduct some of your closing costs come tax season, you may not want to rely on that deduction to significantly lower or avoid your closing costs altogether.

 

2. Secure a No-Closing-Cost Mortgage

secure a no-closing-cost-mortgage

If you want to avoid closing costs entirely, you may be able to secure what is called a no-closing-cost mortgage. While lenders will cover many of the fees that fall under closing costs, they will also charge you a higher interest rate for the loan. Your monthly payment will be larger, but you also won’t have to spend as much money upfront, especially when you’re also handing over a sizeable down payment.

For many first-time buyers, coming up with enough money to front all of the initial costs associated with purchasing a home can be challenging. These no-closing-cost mortgages can help alleviate some of that initial financial burden. If you’re a home buyer who has found their ideal home and you want to move in now without needing to wait months or years to save up enough to cover all of the initial costs, this may be the right option for you, especially if you’re planning to live in the home only short-term.

To determine whether a no-closing-cost mortgage is right for you, you may want to crunch the numbers to see if what you’ll be saving upfront is really worth the added expense of a higher interest rate over the life of the loan.

3. No-Closing-Cost Mortgages vs. Other Mortgage Options

no closing cost mortgages vs other mortgage

Start by weighing the total costs of a no-closing-cost mortgage against the total costs of a conventional mortgage.

If you were looking to finance a home for $200,000, you might start by looking at a conventional loan with a four and a half percent fixed rate for a 30-year term and $4,000 in closing costs. For that same loan amount, a no-closing-cost mortgage may offer a five percent fixed rate without any closing costs.

The monthly payments for the conventional loan will be approximately $1,013 with a total mortgage cost of $364,813 over 30 years. The monthly payments for the no-closing-cost mortgage will be approximately $1,074 with a total mortgage cost of about $386,512.

If you accept the no-closing-cost mortgage, within the first couple of years, you’ll break even on the amount you saved through the lender covering your closing costs. After that point, you’ll be paying more than you would with a conventional loan due to your higher interest rate. At a term of 30 years, you could end up spending tens of thousands of dollars more with a no-closing-cost mortgage than you would’ve with a conventional loan.

Other mortgage options offer low-interest rates, and you can also secure certain loans without any down payment. The VA loan is known for its low-interest rates for service members and little to zero down payment. An FHA loan can be secured with a down payment of as little as three and a half percent of the total loan amount. A USDA loan can be secured for low or zero down payment and offer low interest rates for those who live in qualifying areas. Some loan options are intended for those with low income and little savings, so these loans can be great alternatives to no-closing-cost mortgages for qualifying applicants to consider.

Closing costs are not always set in stone. Many can be reduced or waived, such as application and origination fees, so you may be able to lower or reduce fees if you discuss them with your lender without the worry of increasing your interest rate.

Remember that sellers who are very motivated to sell their home may also be willing to contribute to your closing costs. They can contribute up to six percent of the home’s sale price, so you may want to discuss your options with the seller as well.

 

Get Started With Assurance Financial

Learn more about our loan options at assurance financial

On average, closing costs are an extra few thousand dollars that home-buyers need to shell out during the initial process of purchasing their new home. With the significant burden of a down payment that already exists for many home-buyers, those additional thousands of dollars may be yet another significant savings challenge.

Though some may want to take the option of financing their closing costs or of securing a zero cost mortgage, these options often don’t save buyers any money in the long run, especially if it means taking on a higher interest rate for their mortgage. Fortunately, buyers have a number of options when it comes to reducing or eliminating closing costs, especially when you work with the right lender.

Assurance Financial is dedicated to providing the assistance you need to receive your loan hassle-free. Financing your home should bring you joy, and at Assurance Financial, we want to help you make the process of buying your home as joyous and exciting as possible.

Ready to get started? Apply in as little as 15 minutes at Assurance Financial! Learn more about the loans we offer and the options available for first-time homebuyers.

 

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When it comes to financing a home or a build, there are several factors involved in the type of loan you apply for. The interest rate is a key factor, but the more important one is the down payment.

A down payment on a home is the money you give to the lender, initially. Typically, this is a piece of the overall cost of whatever is being borrowed. Whatever amount is left over after the down payment is paid, is paid off over time in the form of a mortgage.

Generally, a down payment is a percentage of the total cost being borrowed. It’s important to note that any down payment under 20% normally requires mortgage insurance, (to make sure you repay your loan.) However, if you put down more than 20%, you don’t need insurance. For this very reason (amongst other things) the Conventional Loan is among the most popular.

The type of loan you qualify for will influence the percentage (if any) you provide as a down payment. For example, FHA loans typically have a low down payment, as they’re intended for lower-income borrowers. Jumbo loans – borrowing more than $424,100 – have higher down payment. Loans provided by the United States Department of Agriculture have no down payment.

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Down payments vary based on the type of loan and the conditions of the lenders. Normally, the more money you borrow, the higher the down payment. The reasoning is that down payments usually move directly with the level of risk. The rate in which these two variables increases and decrease is also related to the interest. Lower down payments often come with higher interest. Inversely, higher down payments may have lower interest. However, as we stated, this all depends on your situation and lender.

Here at Assurance Financial, we’re the home loan experts. It’s the only thing we do, and it’s what we do best.

When it comes to the nuances and intricacies of conditions, terms, agreements – let us worry about that. Contact one of our experts today and let us find the perfect loan and down payment for your dream home!

When we think of mortgages, we generally assume this loan is for buying or building a new home, but a mortgage can also be used to renovate, repair or restore a home. Regardless of your situation, there is a loan out there that is right for you.

So how do you choose the right mortgage for you? What exactly are the different loan types? To find the right mortgage loan for your situation, you should understand all of your options to be sure you’re getting the ideal loan for you. If you’re looking for an explanation of the different types of mortgage loans, we’re here to help.

Different Types of Mortgage Loans Explained

Different Types of Mortgage Loan Explained

In real estate, there are several types of mortgage loans and interest rates. Consider the following mortgages and interest rates to determine what options might be the best for you:

1. FHA

The first kind of loan we’ll discuss is the FHA loan.

What Is an FHA Mortgage Loan?

FHA stands for Federal Housing Administration. These mortgages are backed by the government and insured by the FHA.

Who Should Apply for an FHA Loan?

FHA mortgage loans are a common option for those with less-than-excellent credit and low income. They are also popular with borrowers buying their first home. Borrowers who want a fixed-rate mortgage can get an FHA loan with a fixed rate of 15 or 30 years. Repeat buyers can also get an FHA loan, provided they use the loan for purchasing a primary residence.

What Are the Requirements for Receiving an FHA Loan?

FHA loan requirements

FHA requires a lower minimum credit score and down payment than other mortgage loan types. However, borrowers of an FHA loan must pay FHA mortgage insurance to protect the lender if they default on their loan. Though most borrowers must pay mortgage insurance when they put less than 20% down, all borrowers of FHA loans must pay two types of insurance premiums — an annual premium and an upfront premium.

  • Annual insurance premium: Depending on the loan term, loan amount and the loan-to-value ratio, this mortgage insurance premium can range from 0.45% up to 1.05% of the total loan amount. The amount of this premium is divided by 12 for every month of the year and paid each month.
  • Upfront insurance premium: This premium is 1.75% of the total loan amount and is paid once the borrower acquires their loan. The amount of the premium can be included in the financed mortgage loan amount.

Are you eligible for an FHA loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you:

  • You have a FICO credit score in the range of 500 to 579 with a down payment of at least 10%.
  • You have a FICO credit score of at least 580 with a down payment of at least 3.5%.
  • You’ve been employed for the past two years.
  • You can verify your income with pay stubs, bank statements and tax returns.
  • Your FHA loan will be used for your primary residence.
  • Your property is appraised and meets property guidelines.
  • Your monthly mortgage payments won’t be more than 31% of your monthly income. Some lenders may allow up to 40%.

What Is the Approval Process for an FHA Loan?

The application process is intentionally designed to be flexible to increase the number of buyers entering the housing market. Closing costs for FHA lenders are limited to no more than 5% of the total loan amount.

2. USDA

A more uncommon type of mortgage loan is the USDA loan.

What Is a USDA Mortgage Loan?

What is a usda mortgage loan

This type of mortgage is given to someone who lives in a rural or suburban area designated by the U.S. Department of Agriculture. Borrowers must also live in the house the loan is for.

Who Should Apply for a USDA Loan?

Unlike many other loans where your credit and income are considered the most important factors, the most significant factor for this type of mortgage is the location of your home. Those who live in an eligible area can apply for this loan. These loans are great for applicants with low to moderate levels of income and those who are seeking a loan for home improvements.

What Are the Requirements for Receiving a USDA Loan?

USDA mortgage loans generally have low interest rates with zero down payment, so the barriers for receiving this loan are relatively low. You must have a decent credit history, but an excellent credit score isn’t necessary to qualify.

Are you eligible for a USDA loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you:

  • You have a relatively low income in your area. You can check the USDA’s page on income eligibility to determine whether you qualify.
  • You’ll be making the home your primary residence, or for a repair loan, you occupy the home.
  • You must be able to verify that you’re able and willing to meet the credit obligations.
  • You must either be a U.S. citizen or meet the eligibility requirements for a noncitizen.
  • You must be purchasing an eligible property.

What Is the Approval Process for a USDA Loan?

To get approved for USDA loan, you don’t need a down payment and you don’t need to be a first-time homebuyer. Additionally, the seller can contribute to your closing costs.

3. Construction

If you want to build a house, you’ll likely need a construction loan.

What Is a Construction Mortgage Loan?

What is a construction mortgage loan

This type of mortgage loan involves buying land on which to build a house. These loans typically come with much shorter terms than other loans, at a maximum term of one year. Rather than the borrower receiving the loan all at once, the lender will pay out the money as the work on the home construction progresses. Rates are also higher for this mortgage loan type than for others.

There are two types of construction loans — construction-to-permanent loans and construction-only loans.

  • construction-to-permanent loan is essentially a two-in-one mortgage loan. This is also known as a combination loan, which is a loan for two separate mortgages given to a borrower from a single lender. The construction loan is for the building of the home, and once the construction is completed, the loan is then converted to a permanent mortgage with a 15-year or 30-year term. During the construction phase, the borrower will pay only the interest of the loan. This is known as an interest-only mortgage. During the permanent mortgage, the borrower will pay both principal and interest at a fixed or variable rate. This is when payments increase significantly.
  • construction-only loan is taken out only for the construction of the house, and the borrower takes out another mortgage loan when they move in. This may be a great option for those who already have a home, but are planning to sell it after moving into the home they’re building. However, borrowers will also pay more in fees with two separate loans and risk running the chance of not being able to move into their new home if their financial situation worsens and they can no longer qualify for that second mortgage.

Who Should Apply for a Construction Loan?

Borrowers looking to buy land on which to build a home should apply for this type of loan. A construction loan can be used to cover the expenses of the work and materials, including permits, labor, framing costs and finishing costs.

What Are the Requirements for Receiving a Construction Loan?

Construction mortgages are one of the most difficult to secure and thus also one of the most uncommon. This is because with other loans, in the event that the borrower defaults on their loan payments, the bank can then seize the home. In these cases, the home is collateral. However, with a construction loan, this isn’t an option, which makes the mortgage riskier for the bank.

The requirements for receiving this loan are a large down payment, a good to excellent credit score, a stable income and a low ratio of debt-to-income. You’ll also need savings for any extra expenses you encounter along the way during the construction of the home.

What Is the Approval Process for a Construction Loan?

Approval process for a construction loan

To get approval for a construction loan, the borrower will need to submit to the lender a construction timetable with a realistic budget and detailed plans. Borrowers generally only need to make interest payments while construction is in progress. The lender typically sends someone to verify the home’s construction progress whenever the borrower requests funds.

4. VA

If you are a veteran, you might be eligible for a VA mortgage loan.

What Is a VA Mortgage Loan?

VA mortage loans explained

VA stands for Veterans Affairs. These mortgages are obtained through a lender but backed in part by the U.S. Department of Veterans Affairs. Though there aren’t any limits on the amount of a borrower’s loan, there are limitations on how much will be guaranteed by the VA.

These loans generally have lower rates than other mortgage loans. Borrowers can use their VA loan only for a primary residence, so they cannot be used for vacation homes or investment properties. VA loan holders are also not required to pay private mortgage insurance. Following six months of active duty, this mortgage type is provided with 100% financing.

Who Should Apply for a VA Loan?

VA mortgage loans can be given to members of the national guard, reserves, military or spouses of service members who died during active duty. These mortgage loans don’t require a down payment or excellent credit, so this can be an excellent option for those without much saved up for a down payment or without great credit.

What Are the Requirements for Receiving a VA Loan?

Are you eligible for a VA loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you. You may qualify for a VA loan if:

  • For 90 consecutive days, you served in active service during a time of war.
  • For 181 days, you served in active service during a time of peace.
  • For 6 years, you have been an active member of the Reserves or National Guard.
  • You are the spouse of a service member who died during active service or from a disability related to their service.

You’ll also need to meet your lender’s requirements of credit score, debt-to-income ratio and income.

What Is the Approval Process for a VA Loan?

First, borrowers will need to apply for a Certificate of Eligibility. They can request this from the lender, apply through VA.gov or mail in their application form. After obtaining their COE, borrowers can then apply for their VA loan through their lender.

5. Jumbo

Another uncommon type of mortgage is the jumbo loan.

What Is a Jumbo Mortgage Loan?

Jumbo mortgages are based on the price of the home. Homes exceeding $424,100 fall into this mortgage bracket. Though historically, jumbo loans have carried higher interests than other mortgage loans, jumbo mortgage interest rates are now closer to the rates of other loan types.

Who Should Apply for a Jumbo Loan?

High-income earners making between $250,000 and $500,000 annually and who are looking to buy high-cost homes in a competitive local market or luxury homes are generally the borrowers who should apply for a jumbo mortgage.

What Are the Requirements for Receiving a Jumbo Loan?

Jumbo loans are risky for lenders because of their large amount and lack of guarantee by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), so eligibility requirements of borrowers are more demanding. To qualify for a jumbo mortgage, you’ll need an excellent credit score of above 700, a large down payment and a low debt-to-income ratio, preferably close to 36%. Interest rates can be high but are also tax deductible.

What Is the Approval Process for a Jumbo Loan?

Getting approved for a jumbo loan

To get approved for a Jumbo loan, you’ll need to prove you have reserves of cash and provide W2 tax forms for two years and 30 days of pay stubs.

6. Conventional

The most common type of mortgage is the conventional loan.

What Is a Conventional Mortgage Loan?

Finally, the most common mortgage type is the conventional mortgage, representing about two-thirds of loans issued to homeowners in the US. This loan is essentially any type of mortgage that isn’t offered by a government entity such as the FHA, VA or USDA Rural Housing Service. Instead, this type of loan is available through Fannie Mae and Freddie Mac. The down payment tends to be a bit higher than other mortgages, and it also offers two interest rate options — fixed and adjustable.

Who Should Apply for a Conventional Loan?

Conventional mortgages can be a great option for both new homebuyers and existing homeowners. Though interest rates tend to be higher than for government-backed loans, insurance premiums required by other loan types may result in the same total cost over the long term.

This mortgage loan type is also generally the best loan option for those who want to buy a second home, a home to use as an investment property or a home valued over $500,000.

What Are the Requirements for Receiving a Conventional Loan?

Conventional loan requirements

Are you eligible for a conventional loan? Review these requirements to determine whether you qualify for this mortgage loan type and whether it’s right for you:

  • Your credit score is at least 680. A higher score can potentially result in a lower interest rate, especially for those with a score over 740.
  • You have a reasonable or low debt-to-income ratio. The ratio of your financial obligations to your monthly income should be around 36% and should not exceed 43%.
  • You have saved up enough for a down payment of 20%. Though a smaller percentage can be accepted, borrowers usually are then required to pay for private mortgage insurance.

What Is the Approval Process for a Conventional Loan?

To get approved for a conventional mortgage loan, borrowers need to complete an official application and supply their lender with any necessary documents for the lender to check their background, credit score and credit history. Lenders look for borrowers who can afford their monthly mortgage payments –– payments that typically should be 28% or less of their gross income –– can afford a down payment and can afford other upfront expenses, such as fees and closing costs.

7. Fixed-Rate

Fixed-rate mortgages come with a rate that doesn’t change during the loan’s duration. Though the amount of the principal and interest that are paid every month varies, the monthly payment stays consistent, making budgeting easier and more predictable for homeowners.

A fixed-rate mortgage protects homeowners from increases in interest rates in the housing market, but they can also be higher in comparison to variable rates. This rate can be possible for multiple term options, such as 30, 20 or 15 years.

8. Adjustable-Rate

The opposite of fixed-rate mortgages are adjustable-rate mortgages, which have variable rates. This means the rate of the mortgage can vary from year to year and are generally more complicated than mortgages with fixed rates.

The rate adjusts on an established set of time, generally every one, three or five years. If your adjustment occurs every five years, this means your monthly payments will be consistent for the first five years of your loan. After those five years, your interest rate will adjust and your payments will either increase or decrease.

9. Reverse

Info about reverse mortgages

A reverse mortgage is a loan for a homeowner 62 years of age or older who wants to borrow against their home’s value. The homeowner doesn’t have to make loan payments, and they’ll receive their loan in the form of a lump sum, line of credit or monthly payment. The loan balance will become due when the borrower permanently moves away, sells their home or dies. The loan amount won’t exceed the value of the home, and the borrower will also not be responsible for paying more should their home’s value decrease.

These loans are an option for homeowners age 62 or older who have most of their net worth tied up in their home and need cash.

10. Balloon

balloon mortgage is a loan in which the borrower repays in the form of a lump sum. This type of loan is typically short-term but can be held for as long as 30 years, they can have variable or fixed rates and they may require interest-only monthly payments. Balloon loans also generally offer higher interest rates due to the increased risk for lenders.

11. Second mortgages

Second mortgages are taken out after a borrower’s first mortgage and are generally used for financing home improvements, consolidating debt or for covering enough of the first mortgage to avoid the requirement of paying the mortgage insurance. Second mortgages generally have terms that last only up to 20 years and can be as short as one year.

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Financing Your Mortgage With Assurance Financial

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Financing your mortgage should be an exciting time in your life, and at Assurance Financial, we strive to help you make it a time that is as memorable and simple as possible. You should be able to enjoy this step in your journey toward homeownership while someone else handles the heavy lifting. That’s where we come in.

We’re an independent lender, and we want to make your dreams of homeownership a reality. We offer end-to-end processing all under one roof so that your path to owning your dream home is a smooth and fast one.

Find a loan officer with us today and let us help you secure the mortgage terms of your dreams for the home of your dreams.